Corporate Plans Lose Ground; Public Plans, Foundations and Endowments Gain in August
Falling interest rates precipitated by geopolitical tensions led to higher liabilities and a lower funded status for the typical U.S. corporate pension plan in August, while rising asset values benefited public plans, foundations and endowments, according to the BNY Mellon Investment Strategy and Solutions Group (ISSG).
The funded status of the typical U.S. corporate pension plan in August fell 0.7 percentage points to 90.1 percent, as liabilities rose 3.3 percent, outpacing the 2.6 percent return for assets, according to the BNY Mellon Institutional Scorecard, which is prepared monthly by ISSG.
This funded status is now down 5.1 percent from the December 2013 high of 95.2 percent, according to the scorecard.
The higher liabilities for corporate plans in August resulted from the Aa corporate discount rate falling 21 basis points to 4.11 percent over the month. Plan liabilities are calculated using the yields of long-term investment grade bonds. Lower or flat yields on these bonds result in higher liabilities.
"Investors appeared to be torn between concerns about increased geopolitical tensions and optimism about the U.S. economy," said Andrew D. Wozniak, head of fiduciary solutions, ISSG. "Geopolitical concerns resulted in more interest in longer term corporate credit and government bonds, sending interest rates lower. Optimism about the economy helped to push equities and other risk-based assets higher."
Public defined benefit plans in August exceeded their target by 1.3 percent as assets increased 1.9 percent, according to the monthly report. Year over year, public plans exceeded their target by 7.6 percent, ISSG said.
For endowments and foundations, the real return in August was 1.1 percent, as assets returned 1.8 percent, ISSG said. Private equity and real estate investment trusts, which comprise 15 percent and eight percent respectively of the asset portfolio, returned 2.5 percent over the month. Year over year, foundations and endowments are ahead of the inflation plus spending target by 6.3 percent, ISSG said.
The BNY Mellon Investment Strategy and Solutions Group is a division of The Bank of New York Mellon.
BNY Mellon Investment Management is one of the world's leading investment management organizations and one of the top U.S. wealth managers, with $1.6 trillion in assets under management. It encompasses BNY Mellon's affiliated investment management firms, wealth management services and global distribution companies.